Peugeot Shuts Aulnay, But Europe Still Has Excess Plants

A Citroen C3 subcompact rolled off PSA Peugeot Citroen’s assembly line at Aulnay today, the 8,568,391st — and last — car to be produced at the factory that once employed 3,300 workers on the outskirts of Paris.

Since Peugeot announced plans to close the 40-year-old plant more than a year ago, output has slowed dramatically due to strikes. Still, Tanja Sussest, leader of the biggest union at the plant, said production of the last car was a moment that she and many other workers needed to witness.

“This will turn a page on Aulnay’s history,” said Sussest, 38. Being present on the final day “allows people to mourn and realize this has come to an end.”

Expect more mourning as European automakers reduce manufacturing capacity in a bid to shore up profits as the region’s car sales sink to a two-decade low. Auto plants typically must operate at 80 percent of capacity to be profitable, according to CM-CIC Securities.

Factories in Europe, including Russia, can make almost 26 million cars a year, roughly 7 million more than they’re currently producing — and customers will buy — researcher IHS estimates. Matching capacity with demand would entail closing 18 European plants the size of Aulnay.

As automakers start closing factories, they’re meeting intense opposition. Ford Motor Co. said a year ago it would shut three European plants and cut 5,700 jobs. General Motors Co.’s Opel unit said in December it would close its Bochum plant, which employs 3,100. Italy’s Fiat SpA in 2011 shut its Termini Imerese factory in Sicily.

Held Hostage

In each case, unions have pressured local politicians to slow or stop the shutdowns. At a Ford plant in Belgium, a manager was briefly held hostage by workers before being released. Unions in Bochum have delayed GM’s plans. And in Sicily, Fiat’s workers are still on the payroll even though production has stopped.

“For political and union reasons, there has been so much backlash in a lot of countries,” said Ian Fetcher, an analyst at IHS Automotive.

Peugeot shut Aulnay as part of a plan to eliminate about 11,200 jobs in the country by 2015. President Francois Hollande said the closing — the first at a French auto plant in 20 years — was “unacceptable” but later a report commissioned by his Industry Ministry called it “inevitable.”

Severance Offers

Strikes and legal actions limited production from January through May, when unions said they reached a deal with management. The disruption contributed to Peugeot’s first-half market share in Europe falling to 12.2 percent from 12.9 percent a year earlier, the company said in July.

Peugeot has offered severance packages and promised to find new jobs for all the Aulnay workers. The company says about 2,700 of Aulnay’s 3,000 permanent employees have found new positions or are close to doing so, either with Peugeot or another employer. The unions say almost 1,100 Aulnay workers are still looking for jobs.

Given the difficulties of closing plants, automakers are working with unions to keep them open at lower cost. Renault SA, Peugeot’s French competitor, reached an agreement with unions in March to cut its workforce by 17 percent in France and freeze wages in exchange for not closing any plants in the country for three years. It also pledged to increase auto production in its home country by 34 percent to 710,000 vehicles by 2016.

Difficult Decision

Peugeot reached a similar deal yesterday with a majority of its unions, which agreed to freeze salaries next year and reduce overtime pay in exchange for investment guarantees and new models. The manufacturer has agreed not to shut additional French plants in the next three years and add a new model at each of five locations.

“The decision to close Aulnay was difficult, but it was a courageous and essential one given the fall of the markets and the industrial overcapacity in Europe,” Philippe Dorge, Peugeot’s human resources director, said today.

(Source: Bloomberg)